This article has been written by Dhruv Mathur, pursuing a Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. It has been edited by Kritika Sharma (Associate, LawSikho) Smriti katiyar (Associate, LawSikho).

Introduction

Specialisations have always been given higher regard in the field of Education. To be specialised in a particular area and to have proficiency in that field always puts you in an advantageous position over others. Individuals having such expertise are often known as consultants. When a specialised individual provides valuable knowledge to individuals and big companies, it is generally referred to as ‘Consultancy’. People often confuse consultancy with advice, but in reality, giving someone advice and consultancy are two very different things. One significant difference in advice and consultancy is advisors advise the company for an extended period regarding the business. When the firm faces an issue, these advisors help the business. In contrast, consultancy is related only to a specific project where the consultant provides their skills and knowledge to a company. When the project has been completed, the tenure of these Consultants is completed. 

There is no legal definition defining a Consultant. The term can be applied to any individual who provides expert assistance to others who do not have the required workforce in the specialised field and may work for them for a short or even a more extended period. But when these Consultants provide their valuable inputs to the others, there must be an agreement between the consultant and the other party that defines their obligation to each other. These Agreements shall not be just mere handshakes or oral agreements but actual written agreements. Such agreements are known as Consultancy Agreements. 

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Consultancy agreements

Consultancy Agreements are contractual documents that define the fiduciary relationship between the company and the consultant providing their services. These agreements are binding and can have legal consequences.  Suggestion: the above sentence can be constructed in the following manner- In case the provisions of the consultancy agreement state that; if a conflict arises (when a consultant is paid accordingly but is unable to meet the business’s expectations), the company can approach the Court to claim compensation.

Before getting into a consultancy agreement, the consultant should ensure that their rights and interests are protected and that they are fairly compensated for the services they will provide to the business. From a Company’s point of view, they should make sure that the consultant does not reveal their confidential information to the public. These agreements help in protecting the company’s information.

Types of consultants

Some of the different types of consultants a company can hire to work on a particular project are:

  • IT Consultant-  Theses Consultants generally help the company implement IT strategies and solutions, which will help the company grow efficiently.
  • Financial Consultant- Financial Consultant keeps track of the client’s financial transactions and provides financial management information by preparing financial status analysis and reports. 
  • HR Consultant- As few organisations develop, they depend on HR specialists to guarantee that they meet their lawful commitments as a business while fostering a practical and reliable onboarding framework.
  • Legal Consultant- Legal consultants provide legal advice and guidelines in the matter of law. They draft legal documents and agreements, manage negotiations on behalf of the company and ensure company legal compliance.

Benefits of a consultancy agreement 

Consulting Agreements can have many benefits for the business and the consultant. 

Benefits to the consultant:

  • Higher Earnings- When a Consultant signs a Consultancy Agreement, he is generally in charge of asking for a reasonably higher earning depending on the quality and quantity of the specialised skills and knowledge he provides and how long he works in that project.
  • Tax Benefits- Since a Consultant is not officially employed, state taxes are not deducted from the paycheck, contributing to their high earnings. Lower Income Tax is also a bonus for a Consultant.

Benefits to the company

  • Unique Expertise- When Consultants are hired, they provide the best of their skills and knowledge on their project, which helps the company grow and eliminate its competition.
  • Tax Considerations-  Tax laws permit the business to treat employees and consultants suddenly. Lessened Tax responsibility is probably the best advantage a company can get from utilising an independent Consultant.

Essential clauses under consultancy agreements

A consultancy Agreement may be drafted according to the needs of both parties as different clients may have other requirements. Few essential clauses can be included in the consultancy agreement, which can be helpful for both parties.

  • Recital Clause:  Firstly, there must be a recital clause that should mention the effective date of the agreement, the details of both the parties and the business these parties will be engaged in. This clause should give a detailed description of the client’s services to avoid any future liabilities.
  • Term and Termination Clause: This clause is a binding provision that talks about the critical function of defining the period for the agreement. In easy terms, it represents the start and end date of the contract. This clause helps the business to allocate the resources appropriately for the present and plan for the future.

In case of breach of a contract by any party, this clause specifies that the agreement can be terminated. It also states other situations where the party thinks that the agreement should be terminated.

  • Confidential Clause: This is a crucial clause, and it must be included in the agreement to protect the company’s confidential information. This clause should also state that even after the agreement’s termination, the consultant shall not reveal any of the company’s confidential information for a specific time to the public. If the consultant reveals any of this information to the public, he shall be held liable for breach of the contract.
  • Indemnification: The Indemnification clause outlines insurance for compensation for any damages and losses. If any harm is done to the other party, the party who has caused such harm to the other party shall compensate for all the damages and losses.
  • Dispute Resolution:  This clause discusses what course of action should be taken in case of a dispute or a conflict. It helps the parties in avoiding court proceedings and resolve the dispute via Arbitration, Mediation or Settlement.

Apart from these clauses, the clause relating to Non-Competition, Non-Solicitation must be added in a consultancy agreement so that the consultant may not start a business which may harm the reputation and goodwill of the company. 

Conclusion

A Consultancy Agreement is an essential document when a Company hires an independent consultant for the company’s benefit. It protects the interest of both the consultant and the company employing the consultant. Having a consulting agreement with each independent consultant will keep the company in a peaceful state and help the company run smoothly and according to plan. It is a seamless collaboration for the success of a project and the company.

References

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